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Gold prices held above the $2,100 level on Wednesday, near a record peak hit in the previous session as hopes for U.S. rates easing by mid-year mount, while traders awaited remarks on the economy's health from Federal Reserve Chair Jerome Powell.
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Gold prices lost about 3% after President-elect Donald Trump picked Scott Bessent as his Treasury secretary, with reports of Israel and Hezbollah nearing a ceasefire deal also eroding the safe-haven metal's appeal.
Spot prices of the yellow metal dropped 3.44% to $2,616.80 per ounce, according to data from Factset. Gold futures on the New York Mercantile exchange were trading at $2,628.5.
"The ~$100 wipeout in Gold today is as severe in size & pace as the post U.S. election selloff on Nov 6th," MKS Pamp's head of metals strategy, Nicky Shiels said.
A potential Israel-Hezbollah ceasefire agreement and Bessent's appointment were the key contributors to the bullion selloff, Shiels added.
On Monday, Israel's ambassador to the U.N. Danny Danon announced that Israel was moving toward a ceasefire with Hezbollah, though he stressed that it was "not going to happen overnight" and observed that some issues remain unresolved.
White House national security adviser John Kirby had described the discussions on the ceasefire deal as "productive."
"But nothing is done until it's all done, and it's not done right now," he said.
On Monday, key U.S. benchmarks rose to new record highs, with investors seeing Bessent, a hedge fund manager, as someone who will be supportive of the equity market.
A "buying exhaustion" in gold is also contributing to bullion's price reversal, commodity strategist at TD securities Daniel Ghali said, highlighting that the strong physical demand from Asian central banks as well as traders has notably subsided over the past months.
There was heavy Chinese selling overnight at the Shanghai Gold Exchange, Shiels said.
Gold buying activity is also likely to "remain constrained" by a vastly different outlook for the Fed which no longer features the risk of an "overly easy" Fed policy, Ghali added.
Higher interest rates tend to erode the appeal of non-interest bearing gold compared to Treasuries — a competing safe-haven asset.
With uncertainty surrounding the potential impact of President-elect Donald Trump's policies on key sectors of the economy, a rate cut in December no longer seems certain.
The probability that the Federal Reserve will lower its benchmark rate during its Dec. 17-18 meeting stands at 56%, according to the CME Group's FedWatch gauge, substantially lower than the 75% probability about a month back.
"Gold should revert to $2500 not $3000 in the short-term and this move confirms the bounce on Nov 14th was / is a dead cat one," Shiels said.
Gold prices fell to a two-month low right after Trump's victory before rebounding to the $2,700 levels.
Price volatility is expected to continue over the next four months as the Trump administration transitions to power and major announcements regarding tariffs, his positioning on the Russian-Ukraine war come into greater focus, Robert Eckford, CEO of Rua Gold, told CNBC.
Similar to when the Middle East conflict first broke out, gold prices tend to react very sharply initially before correcting over time as economic factors come back into focus, Eckford added, maintaining that gold prices were still set to advance toward $3,000 in 2025.
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